Video – ARM or adjustable rate mortgage

I’m Connie Fuksa with Foote Title Group where we know how overwhelming and stressful the home buying process can be and it’s our job is to make sure that it is simple and smooth. We keep you in the loop through the whole process, make sure you understand everything that’s going on and we ensure that you and your home are protected after closing.

So we are going to start with our Glossary series with the ARM or adjustable rate mortgage. An Adjustable Rate Mortgage is when the interest rates do big hike some may choose this type of loan when buying a home because it gives them the ability to borrow money a little bit cheaper for short periods of time. This actually allows you to get a lower interest rate than what the current standard interest rate is and you get to keep that interest rate for a short period of time. If the interest rates drop overall than your rate may go down when your loan is due to adjust.

So say for example the going market interest rate is 9% and you get an ARM loan at a 7% interest rate, than typically the mortgage would say that the arm period is for a year. After the end of that year the mortgage company determines, based on the current market interest rates, if your interest rate is gonna go up or down. Usually the change on the up or down is a little bit higher than what the current market rate is. So the ARM interest rate that you get as it changes may be a little bit higher than what the market rates are.

This type of loan allows you more buying power so you can buy a little bit more expensive home because your monthly payments will start out a little bit less. This gives you some flexibility and sometimes people choose this when the market interest rates are really high just to get into the home that they want. Then when the interest rates drop they can get that lower payment to start andthen refinance the mortgage to convert to a fixed-rate mortgages.